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Tuesday, January 25, 2011

Three new papers

The first is an
entry titled India which is forthcoming in Elseviers
Encyclopaedia of Financial Globalisation, edited by Gerard
Caprio. It's our attempt at a bird's eye view of what is known, and
not known, about India's financial globalisation.

The second is a treatment of exchange rates and monetary policy and
inflation. There are two well understood phenomena: the `exchange rate
passthrough' (or how prices in India go up when the rupee depreciates)
and the `monetary policy transmission' (or how prices in India go down
when RBI raises rates). This
paper views these two in a unified fashion. The main finding is
that the channel through which monetary tightening influences domestic
prices is mainly through the consequent exchange rate
appreciation.

The third is about explaining the process of firms becoming
multinationals. The conventional story told (the Helpman-Melitz-Yeaple
model) is one where firms self-select themselves to become MNCs, where
more efficient firms export and the most efficient firms become
MNCs. This story is well suited for manufacturing, where costs of
transportation are important, where it's efficient for an Indian firm
to make widgets in the UK so as to avoid the costs of transportation
of shipping to the UK. But this story does not help us think about
services which are `weightless'. We think we
have a story which helps us understand MNCs in services, and when
we go test this with data for Indian software companies, it seems to
work. Our approach yields the opposite prediction: that less
productive software companies are more likely to become MNCs.

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